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Mark Zandi

@Markzandi

Jun 5

Consumer price inflation for May is released later this week, and the report is sure to fan the ongoing debate over what is fueling the painfully high inflation. Well, it’s not outsized demand. Consumer spending during the pandemic has grown much as it did prior to the pandemic.

Behind the high inflation is the pandemic, which continues to scramble global supply chains and labor markets, and the Russian invasion of Ukraine, which has caused oil and other commodity prices to spike. Consistent with this is the high inflation across much of the planet.

That the high inflation has been so persistent has been a surprise, certainly to me. But so too has been the ongoing pandemic – the vaccines that became available over a year ago didn’t bring an end to it. And the Russian invasion wasn’t even on the radar screen.

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Mark Zandi

@Markzandi

Apr 23

Lots of pessimism about the economy out there. Bond investors are signaling their angst with the flat yield curve. Consumers are uneasy according to all the surveys. Even economists, who are loath to call recessions, are starting to do so. Economists at Fannie Mae are the latest.

To be sure, the economy’s prospects are iffy. Hard to imagine they wouldn’t be given fallout from the ongoing pandemic and the Russian invasion of Ukraine. These are massive supply-side shocks to the economy, that are juicing-up inflation and forcing the Fed on high alert.

But recession calls are premature. The economy should weather the storms of the pandemic and Russian invasion, assuming the storms don’t get worse. Behind this optimism is the economy’s strong balance sheet. In aggregate, households and businesses are in great financial shape.

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Mark Zandi

@Markzandi

Mar 31

A big release from the Petroleum Reserve is a good move. The recovery hinges on oil prices. If they move much higher, recession is more than likely, as it will fan the painfully high inflation and inflation expectations. The Fed will have to step on the brakes even harder.

The release of 1 million barrels a day from the SPR, which is about the physical capacity of U.S. refiners to process the oil, along with releases from other country's reserves, will go a long way to keeping oil prices from taking off, and perhaps even push them down a bit.

One potential downside of the release would be to dissuade the Saudis and UAE from increasing production or limit increases in U.S. oil production, but it doesn't look like any of these sources of oil are going to come on quickly, even at much higher oil prices.

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Mark Zandi

@Markzandi

Feb 9

Inflation has peaked. This, despite tomorrow’s blaring headlines on January consumer price inflation. Inflation peaked in October when the Delta wave of the pandemic was doing its maximum damage to global supply chains and keeping millions of sick workers off the job.

The headlines will focus on yr-over-yr CPI inflation, which will be up 7.4%, a forty year high. But this reflects base effects – inflation was an extraordinarily low 1.4% last January. Month-to-month inflation will be up 0.45% in January, half of what it was last October.

As the pandemic continues to fade – each new wave is less disruptive than the previous one – so too will inflation. Global supply chains are ironing things out - global trade volumes have already picked-up. And wage growth will moderate as workers get healthy again.

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Mark Zandi

@Markzandi

Dec 10, 2021

November CPI inflation was predictably ugly, perhaps a bit less ugly than feared. Inflation over the past year has accelerated across most everything, but the biggest culprits have been surging cost of gasoline, home heating and vehicles.

But November will be the peak in inflation. Gasoline and home heating costs have fallen sharply in recent weeks, and with supply chains settling, vehicle production is off bottom, and prices should roll over early next year.

At root, the higher inflation is due to the supply-side disruptions caused by the pandemic, especially the Delta wave of the pandemic. As the pandemic recedes – each wave is less disruptive than the previous one – inflation will moderate.

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Mark Zandi

@Markzandi

Nov 22, 2021

The more I digest the inflation data, the more convinced I become it is peaking and will be decidedly lower by this time next year. Gas and most goods prices will fall by then, and the normalization of prices for services will be over.

The histrionics over inflation rest on a wage-price spiral. But wage growth is up only for low wage workers, who will return to work as the pandemic recedes and they spend their excess savings. Stronger productivity will also help.

Higher inflation expectations is also necessary for a spiral. But they are currently precisely where the Fed wants them. Look at 5-year, 5-year forwards, 10-year TIPS inflation break-evens, and my favorite, the Phila Fed survey of economists.

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